Quake insurance is losing its allure after Katrina

Published 9:00 pm, Tuesday, March 21, 2006

SAN FRANCISCO -- When Charlie Bott got an offer in the mail recently for earthquake insurance, he stared long and hard at the bottom line. Then he threw it away.

"It was way beyond anything you pay for house insurance. Not even in the same league," said Bott, a nuclear engineer with a baby on the way.

Now, like millions of others, he is hoping that the Big One doesn't strike, and if it does, that the government will come to the rescue.

Californians have built vast metropolises atop seismic faults, but 86 percent of the state's homeowners have no quake insurance, a proportion that has crept upward as memories of past quakes fade. The number of uninsured was about 65 percent in 1996.

"It's a game of Russian roulette," said Norman Williams, an assistant deputy commissioner at the state Department of Insurance.

State officials are hoping that next month's 100th anniversary of the 1906 San Francisco earthquake prompts Californians to prepare. That quake and subsequent fires destroyed 28,000 buildings and left 225,000 of the city's 400,000 residents homeless. Estimates of the death toll range from less than 500 to more than 3,000, making it one of the deadliest natural disasters ever to strike the United States.

In the San Francisco Bay area, where geologists project a 62 percent probability of a magnitude 6.7 or greater earthquake in the next 26 years, Hurricane Katrina has had a dual effect on homeowners.

Some Californians called their insurance agents and signed up for quake coverage. But for many others, the billions of dollars in federal aid pouring into the Gulf Coast merely bolstered a sense that the government would come to the rescue after a big earthquake.

In the insurance industry this mind-set is jokingly known as the "Air Force One Solution" -- the notion that the president would surely fly over a disaster zone dropping $100 bills from his plane.

"Good luck with that," said Nancy Kincaid, director of public policy, mitigation and communications for the California Earthquake Authority. The CEA is the state's privately funded, publicly managed quake insurance provider; its member companies provide coverage to about 70 percent of Californians who have such protection.

Nicol Andrews, a spokeswoman for the Federal Emergency Management Agency, said FEMA's job is to get people back on their feet. "It would be a false sense of security to rely on FEMA to rebuild a life the way it was before a disaster," Andrews said.

The cap on FEMA grants to a single household is $26,200, and on loans, $150,000.

The cost of earthquake insurance varies according to a home's location, age, type of construction, proximity to faults and the type of land it is built upon.